French Economy Unexpectedly Failed to Grow as Iran Shock Hit

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(Bloomberg) — France’s economy failed to grow in the first quarter, displaying vulnerability to stagflationary threats emanating from the Iran war.

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Gross domestic product was unchanged from the final three months of 2025, dragged down by trade and weak domestic demand, the Insee statistics agency said. That follows expansion of 0.2% in the previous period, and falls short of the 0.2% median estimate of analysts surveyed by Bloomberg.

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Thursday’s data kick off a busy morning of releases from the euro area’s top economies, culminating in a reading for 21-nation bloc itself that’s set to show steady growth of 0.2%. The numbers saw the euro hold earlier losses to trade 0.1% lower at $1.1661.

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Covering only the first month of fighting in the Middle East, however, the reports don’t reflect the full extent of the slowdown taking hold in Europe as soaring energy costs ripple through the economy, curbing activity and driving inflation up by the most since 2022.

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The European Central Bank, which is expected to hold interest rates at 2% later in the day, is still calibrating its response to the economic consequences of the conflict, though markets reckon it will hike in June, and twice more by year-end.

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Some tightening may prove necessary as surveys indicate the price expectations of firms and households are jumping. An inflation reading for the euro zone, due alongside GDP, is likely to show an acceleration to 3% from 2.6% in March.

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Steeper gains in prices risk further crimping output. France and Italy have already trimmed their outlooks for growth, while Germany has halved its forecast for 2026 to 0.5%. European Commission President Ursula von der Leyen has warned the damage will be felt for years.

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For now, France’s data revealed the economy was already held back by a 0.1% decline in consumer spending in the first quarter and a 0.7% drop in household investment. Business investment also fell 0.2% after stagnation at the end of 2025.

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Net trade made a 0.7% negative contribution to GDP as exports slumped 3.8%. Inventory building offset that drag with a 0.8% boost. 

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A separate publication showed consumer spending jumped 0.7% in March, though that follows a 1.4% drop in February and analysts had forecast a slightly stronger rebound of 0.8%.

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Meanwhile, France’s government has warned the Iran war will cost state finances as much as €6 billion ($7 billion) this year, an impact it says will be offset by freezing spending.

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—With assistance from Harumi Ichikura, Joel Rinneby, Nick Heubeck, Ainhoa Goyeneche and Vassilis Karamanis.

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(Updates with euro in third paragraph.)

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